Breaking the Law: Automaking's Supply and Demand Dilemma

Discussion in 'General Motoring' started by Jim Higgins, Feb 21, 2007.

  1. Jim Higgins

    Jim Higgins Guest

    Breaking the Law: Automaking's Supply and Demand Dilemma

    By Frank Williams
    February 21st, 2007 1,251 Views
    A recent post questioned the relative power of engineers and MBA's in the
    automotive industry. A quick scan of corporate rosters reveals that the biz
    brains control most companies. The hierarchy makes sense; automaking is a
    business. Yes, but- whether their MBA came from Harvard, Yale, or Vinny's
    School of Business and Mortuary Services in Hoboken, the "suits" should know
    that too much unsold inventory is a bad thing. As a corollary, continuing
    production as unsold inventory piles up is a very bad thing. As in fatal.

    Last year, Tommy LaSorda's mob over at Chrysler put the theory to the test.
    At one time, the guys stuffed Chrysler's "sales bank" with 100K excess
    vehicles. And there they sat, waiting for the dealers to catch-up and
    cough-up. After drastic production cutbacks and "if you're breathing you're
    approved" financing offers, dealers managed to whittle that number down to
    something a little less, um, dangerous.

    The holiday break certainly helped; the two week shut down cut off the
    unwanted flow at the knees. As the sun rose on the New Year, Chrysler's
    supply was closer to the industry's Maginot Line: 60 days. The carmaker
    claimed a 51-day supply of 300's, a 68-day supply of Jeep Libertys and a not
    entirely horrendous 110-day supply of gas-guzzling Dodge Rams.

    When production started again, inventory levels rose with tidal
    inevitability. In January, Chrysler averaged 14 sales per dealer. Dodge
    dealers dealt 28 sales apiece and Jeep dealers averaged 13 sales per store.

    The Chrysler Group then added an estimated 152K new cars to their inventory.
    And so, by the first of February, Chrysler/Dodge dealers sheltered a 78-day
    supply of 300's, a 98-day supply of Libertys and a 111-day supply of Rams.

    Meanwhile, GM dealers are also choking on product. As of February first, GM's
    "Like Always" brand (a.k.a. Saturn) had a 230-day supply of Ions (which is
    only 29K units, but there you go). GMC dealers were sitting on 20K or 211
    day's worth of Yukon XL's, a 98% increase from January's 113-day supply.

    And the hits just keep on not happening. In January, Buick dealers averaged
    just four new car sales per store. No wonder they have a 170-day supply of
    LaCrosses and a 116-day supply of Lucernes.

    Ford can't afford to laugh at their cross-town rivals. Mercury dealers only
    managed to move six cars apiece in January, staring down the barrel of 7K
    unsold Montegos (enough to last 147 days). Ford stores averaged just 35
    sales each last month (mostly trucks), with 24K post-pre-Taurus Five
    Hundreds (a 169-day supply) going nowhere slowly.

    In a declining market with hundreds of available models, Toyota is the only
    transplant that seems immune to the temper of the times; they've got low
    supplies of, well, everything and an industry leading 126 sales per dealer.

    Meanwhile, Honda holds a three-month supply of Elements and Ridgelines.
    Nissan can't shift enough quirky Quests (144 days), Frontiers (122 days) and
    Maximas (113 days).

    Even so, thanks to hot-selling Fits (25-day supply) and CR-Vs (19-day
    supply), Honda stores are cranking-out 87 sales per dealer. While Nissan
    thanks its lucky Altima (51 days) and Versa (52 days) for helping dealers
    achieve 68 sales per month.

    Mitsubishi? Not so good. The automaker started February with 3400 Eclipse
    Spyders (a 275-day supply). Relatively speaking, the Dodge-built Raider
    pickup is a hit. At the end of December, Mitsu had a 165-day supply. By the
    start of February, inventory had dwindled to 149 days. Of course, that's
    still more than double the industry benchmark.

    While manufacturers are quick to blame excess winter inventory on seasonal
    fluctuations, here's the bottom line: unions.

    Common sense says that when sales drop, you cut production. Unfortunately,
    the automakers' contracts with the United Auto Workers (UAW) mandate that
    they must continue to pay their employees full whack even if The Big 2.5 cut
    back or stop production.

    They're caught in a classic Catch-22. Should they pay workers to do (and
    produce) nothing, or keep the lines running in hopes they might sell a few
    more vehicles? Either way they're screwed.

    Rather than force a showdown with the UAW, automakers are going hey diddle
    diddle, straight up the middle. They're paying the workers a big pile of
    cash up front to go away forever. Market share may be lost forever, but hey,
    they're gonna hit something and that's the way it goes.

    Even with the buyouts, supply continues to outstrip demand, leading to
    drastic deals. Buyers looking for bargains wait for the desperation sales
    and the cars' reputations suffer accordingly. Brands become synonymous with
    "cheap"- regardless of product quality. Sales fall further as most consumers
    turn to undiscounted brands, figuring they must have higher quality. (There's
    your perception gap.) And the production lines keep moving.

    One way or another, it's a death spiral that has to end.
    Jim Higgins, Feb 21, 2007
  2. Jim Higgins

    Some O Guest

    I'm not surprised the new Honda CR-V is in short supply.
    I've looked at it, but not driven it yet.
    IMO it's a very well designed and practical SUC or SW.
    Some O, Feb 22, 2007
  3. Jim Higgins

    Art Guest

    The one thing you left out is the full salary/stop working idea came from GM
    management..... it was not a union idea. GM had so much going for it at
    the time that they thought they could afford it. The union initially
    thought they were nuts but took them up on it.
    Art, Feb 22, 2007
  4. Jim Higgins

    Jim Higgins Guest

    Just goes to show that GM was sowing their own seeds of destruction way back
    Jim Higgins, Feb 22, 2007
  5. Jim Higgins

    Art Guest

    Yep.... there was a long article about it maybe a year or two ago....
    probably in the Wall Street Journal. The workers have 2 choices. They can
    go out and do volunteer work or they can sit in a room and twiddle their
    thumbs all day for weeks or months at a time. They do not get to stay home.
    Detroit and neighboring suburbs are concerned that they will loses scores of
    volunteers when the practice finally ends.
    Art, Feb 23, 2007
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